EU: Tax Code of Conduct (Hansard, 25 November 1997)

§ Lord McIntosh of Haringey
My Lords, the Government deposited an Explanatory Memorandum on 17th November on the Commission communication of 5th November 1997—A Package to Tackle Harmful Tax Competition in The European Union—which superseded the document to which my noble friend refers in his Question.
The four questions posed by the Commission in its communication of 1st October sought the endorsement of the ECOFIN Council to its plans for handling the proposed package of measures to tackle harmful tax competition. The ECOFIN Council, at its 13th October meeting, discussed the Commission's communication, focusing on the code of conduct.
865 The UK recognised that a voluntary code might play a helpful role in tackling harmful tax competition, but would only agree to a code that respected member states' continued competence in the field of tax. The UK and other member states called for several changes to be made to the draft code. Discussion on the code has subsequently continued in the taxation policy group and in the Council working group. We expect the harmful tax competition package to be on the table for political agreement at the 1st December meeting of the ECOFIN Council.

Lord Bruce of Donington
My Lords, I am most grateful for the noble Lord's reply and his indication of the Government's caution towards proceeding in this matter. He will doubtless be aware that for the past 21 years the European Commission has been seeking to pass measures for tax harmonisation, thereby assuming some control of fiscal matters formerly in the hands of member states. Is he also aware that I have seen the latest memorandum—COM(97)/564—which supersedes the one referred to in my Question? I should like to have the Minister's assurance that he will resist any temptation to accept the agreement with guidelines as being of little policy significance. Is he aware that these guidelines can always be referred to in the preambles and recitals to individual pieces of legislation issued by the Commission and that they are used by the courts—by the European Court in particular—as indicating the drift of the legislation? Will he therefore please give the House an assurance that he will be extra cautious before leading the country into a position where its own fiscal measures in terms of taxation can be determined by the European Commission?

§ Lord McIntosh of Haringey
My Lords, I hoped that I had made it clear that there is no question of the Government's taxation policy being determined by Europe. That is a matter for all member states. At the same time, I have to say to my noble friend in response to his first question that there are advantages in the harmonisation of taxes between European countries because there would otherwise be the possibility of evasion by potential taxpayers moving their assets and their liabilities from one member state to another. So we do not reject the thrust of the European Commission towards tax harmonisation. However, as I made clear in my first Answer, these matters are within the competence of member states and a code of conduct is advisory only.

§ Lord Lawson of Blaby
My Lords, will the Minister assure the House that the Government will resist, as indeed I resisted when I was Chancellor, the move within the Community, prompted by the Commission, for a common withholding tax? Does he not agree that if there were to be a common withholding tax the effect would simply be for capital to flow away from the European Union and into tax havens in countries outside the European Union, which would be to no one's benefit within the Union? Will they resist that proposal?

§ Lord McIntosh of Haringey
My Lords, I recognise the force of what the noble Lord says and his long 866 standing interest in this subject. The proposals currently on the table would require member states to take action on the taxation of savings. They would have the option either to provide information—reciprocal information—or to withhold tax on interest payments. Given this choice, the United Kingdom has made it clear that it would take the first option—reciprocal information.

§ Lord Stoddart of Swindon
My Lords, is my noble friend aware that many people, including myself, have been very concerned about the remarks made on 20th November by M. Pierre Moscovici, the French Minister for Europe, that taxes would have to be harmonised within the next 10 years? Even if the British Government resist, is this not a further move to establish tax harmonisation through the single market, which would mean that tax harmonisation could take place by qualified majority vote and we would not have a veto?

§ Lord McIntosh of Haringey
My Lords, the Government are not in control of off-the-cuff statements or indeed any statements made by finance Ministers of other countries. The present position—and the only basis on which I can answer these questions—is that taxation is a matter for member states. I remind my noble friend that at the Council the question will have to be decided on the basis of unanimity.

§ Lord Mackay of Ardbrecknish
My Lords, am I being too suspicious when I wonder whether the decision to impose a pensions tax of £5 billion a year on pension funds has something to do with the desire to harmonise the tax on savings? Furthermore, will the so-called harmful tax competition include corporation tax? We in this country have a corporation tax level of 31 per cent. In Germany, it is 45 per cent. Will our tax be considered harmful? Will we be forced to increase it to 45 per cent.?

§ Lord McIntosh of Haringey
My Lords, the answer to the noble Lord's first question is, yes, he is being too suspicious. The answer to his second question is that, indeed, a lot of the thrust for the harmonisation of taxation relates to corporate taxation, but none of that implies that we can be forced to change our corporate tax levels.

§ The Earl of Lauderdale
My Lords, can the noble Lord tell the House whether the Government have taken or will take legal advice—

§ The Lord Privy Seal (Lord Richard)
My Lords, I am sorry to intervene, but we have seven minutes left for the fourth Question.